What’s In An Auto Policy?

It is almost impossible to turn on the TV or listen to the radio and not see or hear an ad for auto insurance. Just about all of us have an auto policy, but do we really know what should be in the policy? In this post I am going to break down the parts of an auto insurance policy and what they really mean.

1. Collision Coverage

This is probably the most important and most expensive part of your auto policy. Collision coverage is the insurance that will repair or replace your vehicle when you hit another car, an object (pole, mailbox, light post, etc.), or you flip your car.

This is the most expensive part of the insurance because it can result in the largest payment by the insurance company. Any of us that have been in an accident know that repairs often do not come cheap and replacing a vehicle that has been totaled is even more expensive.

This part of the policy carries a deductible, usually $250 to $1,000, that you pay first then the insurance company pays the rest of the costs. The amount you choose for the deductible affects your premium. The higher your deductible, the lower your premium, and vice versa.

2. Liability Coverage

This section of your policy has 2 parts:

1. Bodily Injury Liability – This is coverage in case someone is injured or killed in an accident you caused. Since you are at fault you are on the hook to pay for the medical bills or lost wages due to the injury, and the coverage helps with this. A frequent recommended amount is $100,000 per person and $300,000 per occurrence.
2. Property Damage Liability – This coverage helps in the instances when the accident results in damage to property. It will pay for repairs to someone’s personal property (House, garage door, mailbox) or public property (utility pole, public building).

Both parts of liability coverage are required by state laws, and the minimum amounts differ from state to state.

3. Comprehensive Coverage

This is for damages to your car that are not due to an accident. This is the insurance for theft or damage from things such as: fire, hail, flood, vandalism, contact with wildlife (the all too common deer in the road). Basically, things out of your control and not a collision.

Much like Collision Coverage, you choose a deductible for this part of your policy as well, usually $100 to $300. This part of the policy is not required by law, but many banks require a minimum amount of coverage while there is a loan on the car.

4. Tort Insurance

Tort might sound like a tasty desert, but it is actually a vital part of your auto policy. In many states you have the option for Full Tort or Limited Tort.

1. Full Tort gives you the right to sue the at fault party in an accident for damages like pain and suffering, lost wages, or medical bills.
2. Limited Tort means that you have a limit on the amount of damages you can collect from the person who is at fault for your accident. You may be able to get reimbursed for medical bills or lost wages, but not have the ability to sue for pain and suffering.

Limited Tort might be part of a policy because you asked for your premium to be the lowest amount possible, but the extra cost per payment might be well worth it if you have a serious accident.

5. Underinsured or Uninsured Motorist

Here is where you are covered if you are in an accident caused by someone that is does not have insurance or does not have the adequate amount of insurance. This is also where you are insured in case of a hit and run incident.

This coverage that is optional, and you choose if you want to carry it in your policy and the amount.

6. Medical Payments Coverage

Provides payments for medical expenses you or your passengers incur due to an accident. This coverage is provided to you regardless of fault, and also covers you if you were hurt while using someone else’s car with their permission.

Depending on the state you may or may not be required to carry this coverage in your policy.

The easiest way to know which of these you have in your policy and how much you are covered for is to review you Declaration Page in your auto insurance policy. This page gives you the details of all these sections in a concise manner and give you information to review with your agent.

_{LPL Financial does not offer any of the insurance types discussed in this article. The article is meant for general educational purposes only.  It should not be considered specific advice, nor does it constitute a recommendation to take a particular course of action. Please consult with the appropriate professionals regarding your personal situation prior to making any financial related decisions.}